The Anatomy of a Contract
We enter into contracts all the time, but what exactly creates a contract? Simply put, a contract is formed when one entity makes an offer to another, and that offer is accepted. Any time you exchange money for services you have likely signed a contract with the service provider. Have you ever hired a plumber? Did you receive a written estimate that you signed to accept the estimate and begin services? If so, you’ve entered into a contract.
The three essential elements are the offer, acceptance, and consideration. To begin a contract, an offer must first be extended. Details of the agreement, as well as its terms and conditions, should be included. Simply explained, an offer is an attempt by the offeror to enter into a contract with another party. Once the offer has been made, the offeree has the option of accepting or rejecting the proposal and its terms and conditions. Finally, to have a legitimate legal agreement, something of value must be exchanged such as money, merchandise, property, protection, or services. If the parties are not trading in money, they should ensure that whatever they are trading, commonly known as their consideration, is considered valuable by the court.
Dissecting a contract even further, there are 7 key ingredients that should be included in a contract: Who, What, Where, When, How Much, The Date, and Signatures. The “Who” in the case of contracts are the parties involved. Let’s say you call a plumber to fix a leak. In this case, you and the company the plumber works for is the “who.”
The “What” is the scope of work. The scope of work is the section of a contract or agreement where all expected activities and deliverables are detailed with the goal of harmonizing expectations between both parties is known as the "tasks and deliverables section." You and the plumber are discussing the problem and they tell you the leak is part of a bigger problem and outline what work needs to be done to correct the issue. They write up a proposal explaining the scope of work. This is the “what.”
The ”Where” is the location of the work. In the case of the plumber, your home is likely the “where” with special attention to specific locations affected such as the front or back yard, the bathroom, the kitchen, etc.
The “When” is the timeline of work. The plumber, in their written estimate that will become a contract if you sign it, will lay out the timeline for completion of the project. It may take a week to get a special part, and then a day to do the work, and another day to follow up.
The “How Much” is the terms of payment. What will it cost for whatever merchandise, property, protection, or services you’d receive? Going back to our plumber example, the quote you will sign will tell you how much the services will cost and the payment timeline. Will you have to pay a deposit? Will you pay the balance upon completion?
The “Date” is simply the date the contract becomes effective. Usually, that is the date the contract is signed.
Finally, the “Signatures” close the deal and the contract is complete. The plumber has given you the scope of work, the location of the work, the timeline of the work, the expected payment terms, and has dated the estimate. Now you accept or decline. You’ve decided the plumber you’ve called is giving you a good deal, so you accept and sign the estimate.
You now have a contract with the plumber’s company. You have been given an offer, you have accepted, and you have met the consideration standards. In doing so you have met all seven key ingredients for a contract. You know the who, what, where, when, how much, have the date, and have given your signature to confirm your intent to follow through with the agreement. Our commercial litigation, real estate, construction teams, and other attorneys within our practice areas are here to advise our clients on their options based on the specific terms outlined in their contracts. For more information and assistance with a contract, you can contact us here.